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Corporate Social responsibility (CSR) is company commitment to operating in economically, social and environmentally sustainable manner whilst balancing its interest of diverse stakeholder (CSR report, 2007). CSR means integrating open and transparence business practice into business operations which are basing on ethical values and respect for employees, communities and the environment (Bursa Malaysia). CSR activity includes:-
i) The environment
Environment includes variety of issues. One of the best examples is no plastic bag on every Saturday, Sunday and Monday which has been practice in most of the state in Malaysia. This is to ensure that our flora and fauna be protected.
ii) The community
Companies live within the community. They depend on the community in many ways and the community depends on them. Supporting employee involvement in community issues enriches the community and the company, supporting education, such as adopting a school, is another possible activity. Moreover Companies think how they can contribute to children, youth development and the under-privileged. All of this is part of the contribution to the community.
Marketplace is where we can find the important stakeholder of the company. For example, Raising standard of corporate governance within the company so it can meet the shareholder expectation is part of the marketplace contribution. In other word, Marketplace is a way on helping each other between the company and the stakeholder.
iv) The workplace.
Staff or employee is one of the important assets of the company. So, it is very important to take good care of every employee when we are dealing with basic human rights or gender issues. A quality work environment and health & safety are obvious considerations.
Ideally, companies should consider all 4 CSR dimensions when crafting their own visions. However, that does not mean a company must do everything. They are few benefits for the company who concern about CSR.
CSR is titled to aid an organization's mission as well as a guide to what the company stands for and will uphold to its consumers. Development business ethics is one of the forms of applied ethics that examines ethical principles and moral or ethical problems that can arise in a business environment.
CSR is an important element in a company. To prove on the statement, I will use 2 listed manufacture companies at BSKL as my research company. The company which I use is involve in CSR is Panasonic Manufacturing Malaysia Berhad and company which does not involve in CSR is Ya Horng Electronic (M) Berhad. I will use 3 years financial report from 2006-2007 determine their company status.
Panasonic Manufacturing Malaysia Berhad (PMMA)
Before the year of 2005, PMMA was known as MELCOM. Since its form in the year of 1962, PMMA has won several awards and has listed in KLSE since 1966.PMMA focus on environmental friendly product since they develop first Malaysia CFC- free refrigerator in the year of 1995. Other than that, PMMA focus on design as well which they have won several best design awards from the product that they design.
Ya Horng Electronic (M) Berhad
Ya Horng was founded in the year of 1972 in Taiwan with their first product 5" turntable. They start Ya Horng Malaysia 18 years ago with core business of Original Equipment Manufacturing (OEM), Original Design Manufacturing (ODM) and Contract Manufacturing Service Provider, in manufacturing of Audio Electronic Products such as Turntable, CD player, and Mixer. Ya Horng currently headquartered in Penang, Malaysia and there are about 800 employees.
Findings and Analysis
= Net income/ Revenue
Profit margin defines as ratio of profitability calculated as net income divided by revenues, or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings (investopedia).
From above calculation, It shown that Panasonic which involving in CSR is doing much more better than Ya horng. From 2006, Panasonic profit is just 0.07 and grown drastically to 0.093 in the year of 2008. Even thought in 2008 is showing economic downturn however, it still manage to increase their profit margin. This might be the effort of the committee of CSR which first implement an environment friendly and safe product for the requirement of fulfilling the requirement of export to European countries.
In other word, Ever ringgit that Panasonic spend be able to generate more income due to more customer is choosing their product.
=Revenue/ total asset
The asset turnover ratio calculates the total revenue for every dollar of assets a company owns (Joshua Kannon).
From above table, it shown that Ya Horng is having a much higher assets turnover compare with Panasonic. In other word, Ya Horng is more efficient in managing their assets. However, this does not mean Panasonic is actually doing badly in their management, because this might due to the pricing strategy.
According to investopedia, companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover (answers). A pricing strategy for example discounting can lower the margin by lowering sales and assets such as receivables. Panasonic may be keeping their rates lower to attract business or to keep current contracts and causing their working capital requirements to be funded from credit spending.
By just looking at the assets turnover ratio cannot judge on the by doing CSR has lower down their power in their sales. It is because this might be one of the pricing strategies from Panasonic.
Return on Assets (ROA)
= net Income/total assets
ROA show the profitability of a company to generate the company revenue. This is important to know what the company can do with what it has.
ROA tells an investor on how much profit can generate for each RM1 in assets. Both of the company is Manufacture Company which need huge assets to buy machinery in order to generate more profit. For example, in 2008 every RM1 the company invests into Panasonic can earn RM0.075 however Ya Horng only can generate RM0.0457.
Panasonic show a growing in return of assets from 0.058 in 2006 to 0.075 in 2008. The growing is much higher than Ya Horng.
Return on Common Stock Equity (ROE)
=net income/ shareholder equity
The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested (investopedia)
It is useful for shareholder to know how much they can earn for every RM1 they invest. In other word is reflecting the firm ability to generate profit with using the money of money from the shareholder. Both of the companies manage to maintain positive figure in ROE however Panasonic is showing better performance in using shareholder investment.
Although Ya Horng doing not so well in their management, however they consistently increasing in their ROE from 0.0328 at 2006 to 0.0544 in 2008. Compare with Panasonic, they are increasing in 2006 - 2007 however showing decreasing in 2008 from 0.0925 to 0.087. This might be the impact of the global economic downturn due to USA financial crisis.
Panasonic seem to have bigger impact because they involve worldwide currency trading around the word compare with YA Horng which only involve Asia country only.
Earnings per share
The portion of a company's profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company's profitability (financial dictionary).
Earnings per share for Panasonic are showing increment from 2006-2008. Compare with Ya Horng is showing decreasing in 2006 - 2007 from 0.01226 to 0.0617 and manage to increase in 2008 to 0.0867. Inconsistent earnings from Yu Horng will lose the confident from the shareholder.
Price-earnings ratio (P/E ratio)
= current stock price/ EPS
The P/E is one of those numbers that investors throw around with great authority as if it told the whole story. (Ken Little)
The P/E ratio can looks at the relationship between the stock price and the company's earnings. The P/E ratio can tell us how much the market willing to pay for the company's earnings does. The higher the P/E ratio, the more the market is willing to pay for the company's earnings.
Both of the companies are showing inconsistent in the P/E ratio. In the year of 2008, both companies had shown decreasing in P/E ratio. In 2006, P/E ratio of Panasonic is 9.95 and increase in the following year to 13.47. However, in 2008 has shown decreasing to 11.30. Ya Horng are facing a very low in P/E ratio in the year of 2008 which may harm the company.
A low P/E ratio may indicate the market has no confident on the companies. Investors are not willing to pay for the company's earnings.
Discussion on the useful of CSR in an organization
Base on the findings, Panasonic Manufacturing Malaysia Berhad which has CSR disclosure is doing better than Ya Horng Electronic (M) Berhad. They are interrelationship between the earnings of the company and CSR.
Doing CSR will bring a long term benefit to an organization. Panasonic who has started doing CSR since the year of 1995 by launching first Malaysian CFC-free refrigerator has built their reputation in the heart of the customer. In the view as an investor, corporations who doing CSR will gain better recognition from perspective of international and local investor. The objective of a traditional business is to maximize the profit. However, the traditional view is no longer can be adopt in today business environment (Harrison & Freeman,1999) Citizen will concern on the environment problem which global warming has become more serious. One of the reasons of global warming is incontrollable using CFC refrigerator and air-cond.
Other then product, Panasonic is concern on their employee as well which ensure their 986 employees having a safe and healthy workplace. They organize a "safety and health campaigns month" and conducted a special general morning assembly on safety morning agenda. Moreover, the company also undertakes the human resource development activities which offered internship for students from local universities. In a financial point of view, it might be a cost for a company but in long term it will become intangible assets to a company. Skill employees will retain in the company and they are motivate to participate and contribute to the company even operate at peak performance (Paul A. Parks, 2004)
As one of the leading companies having provided high level of disclosure, Panasonic has contributed to the community as well. RM34 million has been donated to Ministry of Youth and Sports to build a multi-purpose sport complex in the year of 2007. The purpose is to support local government to promoting youth and sports in Malaysia.
In my opinion, CSR is a compulsory element in an organization to build a company reputation. It is because public is more concern with CSR through better education and media. Organization who did not equip themselves with CSR will leave behind with the increasing of global competition. It has been proving that consumer is made more aware of CSR which has been done by an organization (Altman, 2007)
As a suggestion to companies who doing CSR, management is the key of success in implement CSR. Financial management is to make sure the company invests in CSR base on their financial ability. A wrongful decision make might harm the company due to lack of cash flow in the company.
Next is the concern of the shareholder. Director has to be transparence enough in doing CSR and need to have a good communication between shareholders. It might be a burden for a company who just started to do CSR. However, it will see a better result in future because CSR is a long term investment.
CSR is a very important element in today business. It has being concern by the public although some people or companies do not accept CSR. Panasonic manufacture Malaysia and Ya Horong electronic(m) berhad are 2 companies being chosen to exanimate their financial performance. Base on the calculation above, it has been proven that Panasonic manufacture Malaysia who doing CSR disclosure is doing much more better than Ya Horng electronic(m) berhad.